Chapter 9. Formation of a General Rate of Profit (Average Rate of Profit)
and Transformation of the Values of Commodities into Prices of Production

The organic composition of capital depends at any given time on
two circumstances: first, on the technical relation of labour power employed to
the mass of the means of production employed; secondly, on the price of these
means of production. This composition, as we have seen, must be examined on the
basis of percentage ratios. We express the organic composition of a certain
capital consisting 4/5 of constant and 1/5 of variable capital, by the formula
80c + 20v. It is furthermore
assumed in this comparison that the rate of surplus-value is unchangeable. Let
it be any rate picked at random; say, 100%. The capital of 80c + 20v then produces a surplus-value of
20s, and this yields a rate of profit of 20% on the total
capital. The magnitude of the actual value of its product depends on the
magnitude of the fixed part of the constant capital, and on the portion which
passes from it through wear and tear into the product. But since this
circumstance has absolutely no bearing on the rate of profit, and hence, in the
present analysis, we shall assume, for the sake of simplicity, that the
constant capital is everywhere uniformly and entirely transferred to the annual
product of the capitals. It is further assumed that the capitals in the
different spheres of production annually realise the same quantities of
surplus-value proportionate to the magnitude of their variable parts. For the
present, therefore, we disregard the difference which may be produced in this
respect by variations in the duration of turnovers. This point will be
discussed later.

Let us take five different spheres of production, and let the capital in
each have a different organic composition as follows:

Capitals

Rate of
Surplus-Value

Surplus-
Value

Value of
Product

Rate of
Profit

I. 80c + 20v

100%

20

120

20%

II. 70c + 30v

100%

30

130

30%

III. 60c + 40v

100%

40

140

40%

IV. 85c + 15v

100%

15

115

15%

V. 95c + 5v

100%

5

105

5%

Here, in different spheres of production with the same degree of
exploitation, we find considerably different rates of profit corresponding to
the different organic composition of these capitals.

The sum total of the capitals invested in these five spheres of production =
500; the sum total of the surplus-value produced by them = 110; the aggregate
value of the commodities produced by them = 610. If we consider the 500 as a
single capital, and capitals I to V merely as its component parts (as, say,
different departments of a cotton mill, which has different ratios of constant
to variable capital in its carding, preparatory spinning, spinning, and weaving
shops, and in which the average ratio for the factory as a whole has still to
be calculated), the mean composition of this capital of 500 would = 390c + 110v, or, in per cent, = 78c + 22v. Should each of the capitals of
100 be regarded as 1/5 of the total capital, its composition would equal this
average of 78c + 22v; for every 100
there would be an average surplus-value of 22; thus, the average rate of profit
would = 22%, and, finally, the price of every fifth of the total product
produced by the 500 would = 122. The product of each fifth of the advanced
total capital would then have to be sold at 122.

But to avoid entirely erroneous conclusions it must not be assumed that all
cost-prices = 100.

With 80c + 20v and a rate of
surplus-value = 100%, the total value of commodities produced by capital I =
100 would be 80c + 20v + 20s = 120, provided the entire constant capital went into the
annual product. Now, this may under certain circumstances be the case in some
spheres of production. But hardly in cases where the proportion of c : v = 4 :
1. We must, therefore, remember in comparing the values produced by each 100 of
the different capitals, that they will differ in accordance with the different
composition of c as to its fixed and circulating parts, and that, in turn, the
fixed portions of each of the different capitals depreciate slowly or rapidly
as the case may be, thus transferring unequal quantities of their value to the
product in equal periods of time. But this is immaterial to the rate of profit.
No matter whether the 80c give up a value of 80, or 50,
or 5, to the annual product, and the annual product consequently = 80c + 20v + 20s =
120, or 50c + 20v + 20s = 90, or 5v + 20v + 20s = 45; in all these cases the
redundance of the product's value over its cost-price = 20, and in calculating
the rate of profit these 20 are related to the capital of 100 in all of them.
The rate of profit of capital I, therefore, is 20% in every case. To make this
still plainer, we let different portions of constant capital go into the value
of the product of the same five capitals in the following table:

Capitals

Rate of
Surplus-Value

Surplus-
Value

Rate of
Profit

Used
up c

Value of
commodities

Cost-
Price

I. 80c + 20v

100%

20

20%

50

90

70

II. 70c + 30v

100%

30

30%

51

111

81

III. 60c + 40v

100%

40

40%

51

131

91

IV. 85c + 15v

100%

15

15%

40

70

55

V. 95c + 5v

100%

5

5%

10

20

15

390c + 110v

—

110

110%

—

—

—

Total

78c + 22v

—

22

22%

—

—

—

Average

If we now again consider capitals I to V as a single total capital, we shall
see that, in this case as well, the composition of the sums of these five
capitals = 500 = 390c + 110v, so
that we get the same average composition = 78c + 22v, and, similarly, the average surplus-value remains 22. If we
divide this surplus-value uniformly among capitals I to V, we get the following
commodity-prices:

Capitals

Surplus-
Value

Value of
Commodities

Cost-Price of
Commodities

Price of
Commodities

Rate of
Profit

Deviation of
Price from Value

I. 80c + 20v

20

90

70

92

22%

+2

II. 70c + 30v

30

111

81

103

22%

-8

III. 60c + 40v

40

131

91

113

22%

-18

IV. 85c + 15v

15

70

55

77

22%

+7

V. 95c + 5v

5

20

15

37

22%

+17

Taken together, the commodities are sold at 2 + 7 + 17 = 26 above, and 8 +
18 = 26 below their value, so that the deviations of price from value balance
out one another through the uniform distribution of surplus-value, or through
addition of the average profit of 22 per 100 units of advanced capital to the
respective cost-prices of the commodities I to V. One portion of the
commodities is sold above its value in the same proportion in which the other
is sold below it. And it is only the sale of the commodities at such prices
that enables the rate of profit for capitals I to V to be uniformly 22%,
regardless of their different organic composition. The prices which obtain as
the average of the various rates of profit in the different spheres of
production added to the cost-prices of the different spheres of production,
constitute the prices of production. They have as their prerequisite the
existence of a general rate of profit, and this, again, presupposes that the
rates of profit in every individual sphere of production taken by itself have
previously been reduced to just as many average rates. These particular rates
of profit = s/c in every sphere of production, and must, as occurs in Part I of
this book, be deduced out of the values of the commodities. Without such
deduction the general rate of profit (and consequently the price of production
of commodities) remains a vague and senseless conception. Hence, the price of
production of a commodity is equal to its cost-price plus the profit, allotted
to it in per cent, in accordance with the general rate of profit, or, in other
words, to its cost-price plus the average profit.

Owing to the different organic compositions of capitals invested in
different lines of production, and, hence, owing to the circumstance that
— depending on the different percentage which the variable part makes up
in a total capital of a given magnitude — capitals of equal magnitude put
into motion very different quantities of labour, they also appropriate very
different quantities of surplus-labour or produce very different quantities of
surplus-value. Accordingly, the rates of profit prevailing in the various
branches of production are originally very different. These different rates of
profit are equalized by competition to a single general rate of profit, which
is the average of all these different rates of profit. The profit accruing in
accordance with this general rate of profit to any capital of a given
magnitude, whatever its organic composition, is called the average profit. The
price of a commodity, which is equal to its cost-price plus the share of the
annual average profit on the total capital invested (not merely consumed) in
its production that falls to it in accordance with the conditions of turnover,
is called its price of production. Take, for example, a capital of 500, of
which 100 is fixed capital, and let 10% of this wear out during one turnover of
the circulating capital of 400. Let the average profit for the period of
turnover be 10%. In that case the cost-price of the product created during this
turnover will be 10c for wear plus 400 (c + v)
circulating capital = 410, and its price of production will be 410 cost-price
plus (10% profit on 500) 50 = 460.

Thus, although in selling their commodities the capitalists of the various
spheres of production recover the value of the capital consumed in their
production, they do not secure the surplus-value, and consequently the profit,
created in their own sphere by the production of these commodities. What they
secure is only as much surplus-value, and hence profit, as falls, when
uniformly distributed, to the share of every aliquot part of the total social
capital from the total social surplus-value, or profit, produced in a given
time by the social capital in all spheres of production. Every 100 of an
invested capital, whatever its composition, draws as much profit in a year, or
any other period of time, as falls to the share of every 100, the Nth part of
the total capital, during the same period. So far as profits are concerned, the
various capitalists are just so many stockholders in a stock company in which
the shares of profit are uniformly divided per 100, so that profits differ in
the case of the individual capitalists only in accordance with the amount of
capital invested by each in the aggregate enterprise, i. e., according to his
investment in social production as a whole, according to the number of his
shares. Therefore, the portion of the price of commodities which replaces the
elements of capital consumed in the production of these commodities, the
portion, therefore, which will have to be used to buy back these consumed
capital-values, i. e., their cost-price, depends entirely on the outlay of
capital within the respective spheres of production. But the other element of
the price of commodities, the profit added to this cost-price, does not depend
on the amount of profit produced in a given sphere of production by a given
capital in a given period of time. It depends on the mass of profit which falls
as an average for any given period to each individual capital as an aliquot
part of the total social capital invested in social production.

When a capitalist sells his commodities at their price of production,
therefore, he recovers money in proportion to the value of the capital consumed
in their production and secures profit in proportion to this advanced capital
as the aliquot part in the total social capital. His cost-prices are specific.
But the profit added to them is independent of his particular sphere of
production, being a simple average per 100 units of invested capital.

Let us assume that the five different investments I to V of the foregoing
illustration belong to one man. The quantity of variable and constant capital
consumed per 100 of the invested capital in each of the departments I to V in
the production of commodities I to V would, needless to say, make up a part of
their price, since at least this price is required to recover the advanced and
consumed portions of the capital. These cost-prices would therefore be
different for each class of the commodities I to V, and would as such be set
differently by the owner. But as regards the different quantities of
surplus-value, or profit, produced by I to V, they might easily be regarded by
the capitalist as profit on his advanced aggregate capital, so that each 100
units would get their definite aliquot part. Hence, the cost-prices of the
commodities produced in the various departments I to V would be different; but
that portion of their selling price derived from the profit added per 100
capital would be the same for all these commodities. The aggregate price of the
commodities I to V would therefore equal their aggregate value, i. e., the sum
of the cost-prices I to V plus the sum of the surplus-values, or profits,
produced in I to V. It would hence actually be the money-expression of the
total quantity of past and newly applied labour incorporated in commodities I
to V. And in the same way the sum of the prices of production of all
commodities produced in society — the totality of all branches of
production — is equal to the sum of their values.

This statement seems to conflict with the fact that under capitalist
production the elements of productive capital are, as a rule, bought on the
market, and that for this reason their prices include profit which has already
been realised, hence, include the price of production of the respective branch
of industry together with the profit contained in it, so that the profit of one
branch of industry goes into the cost-price of another. But if we place the sum
of the cost-prices of the commodities of an entire country on one side, and the
sum of its surplus-values, or profits, on the other, the calculation must
evidently be right. For instance, take a certain commodity A. Its cost-price
may contain the profits of B, C, D, etc., just as the cost-prices of B, C, D,
etc., may contain the profits of A. Now, as we make our calculation the profit
of A will not be included in its cost-price, nor will the profits of B, C, D,
etc., be included in theirs. Nobody ever includes his own profit in his
cost-price. If there are, therefore, n spheres of production, and if each makes
a profit amounting to p, then their aggregate cost-price = k - np. Considering
the calculation as a whole we see that since the profits of one sphere of
production pass into the cost-price of another, they are therefore included in
the calculation as constituents of the total price of the end-product, and so
cannot appear a second time on the profit side. If any do appear on this side,
however, then only because the commodity in question is itself an ultimate
product, whose price of production does not pass into the cost-price of some
other commodity.

If the cost-price of a commodity includes a sum = p, which stands for the
profits of the producers of the means of production, and if a profit = p1 is added to this cost-price, the aggregate profit P = p +
p1. The aggregate cost-price of the commodity, considered
without the profit portions, is then its own cost-price minus P. Let this
cost-price be k. Then, obviously, k + p = k + p + p1. In
dealing with surplus-values, we have seen in Book I that the product of every
capital may be so treated, as though a part of it replaces only capital, while
the other part represents only surplus-value. In applying this approach to the
aggregate product of society, we must make some rectifications. Looking upon
society as a whole, the profit contained in, say, the price of flax cannot
appear twice — not both as a portion of the linen price and as the profit
of the flax.

There is no difference between surplus-value and profit, as long as, e.g.,
A's surplus-value passes into B's constant capital. It is, after all, quite
immaterial to the value of the commodities, whether the labour contained in
them is paid or unpaid. This merely shows that B pays for A's surplus-value.
A's surplus-value cannot be entered twice in the total calculation.

But the difference is this: Aside from the fact that the price of a
particular product, let us say that of capital B, differs from its value
because the surplus-value realised in B may be greater or smaller than the
profit added to the price of the products of B, the same circumstance applies
also to those commodities which form the constant part of capital B, and
indirectly also its variable part, as the labourers' necessities of life. So
far as the constant portion is concerned, it is itself equal to the cost-price
plus the surplus-value, here therefore equal to cost-price plus profit, and
this profit may again be greater or smaller than the surplus-value for which it
stands. As for the variable capital, the average daily wage is indeed always
equal to the value produced in the number of hours the labourer must work to
produce the necessities of life. But this number of hours is in its turn
obscured by the deviation of the prices of production of the necessities of
life from their values. However, this always resolves itself to one commodity
receiving too little of the surplus-value while another receives too much, so
that the deviations from the value which are embodied in the prices of
production compensate one another. Under capitalist production, the general law
acts as the prevailing tendency only in a very complicated and approximate
manner, as a never ascertainable average of ceaseless fluctuations.

Since the general rate of profit is formed by taking the average of the
various rates of profit for each 100 of capital invested in a definite period,
e.g., a year, it follows that in it the difference brought about by different
periods of turnover of different capitals is also effaced. But these
differences have a decisive bearing on the different rates of profit in the
various spheres of production whose average forms the general rate of profit.

In the preceding illustration concerning the formation of the average rate
of profit we assumed each capital in each sphere of production = 100, and we
did so to show the difference in the rates of profit in per cent, and thus also
the difference in the values of commodities produced by equal amounts of
capital. But it goes without saying that the actual amounts of surplus-value
produced in each sphere of production depend on the magnitude of the invested
capitals, since the composition of capital is given in each sphere of
production. Yet the actual rate of profit in any particular sphere of
production is not affected by the fact that the capital invested is 100, or m
times 100, or xm times 100. The rate of profit remains 10%, whether the total
profit is 10:100, or 1,000:10,000.

However, since the rates of profit differ in the various spheres of
production, with very much different quantities of surplus-value, or profit,
being produced in them, depending on the proportion of the variable to the
total capital, it is evident that the average profit per 100 of the social
capital, and hence the average, or general, rate of profit, will differ
considerably in accordance with the respective magnitudes of the capitals
invested in the various spheres. Let us take four capitals A, B, C, D. Let the
rate of surplus-value for all = 100%. Let the variable capital for each 100 of
the total be 25 in A, 40 in B, 15 in C, and 10 in D. Then each 100 of the total
capital would yield a surplus-value, or profit, of 25 in A, 40 in B, 15 in C,
and 10 in D. This would total 90, and if these four capitals are of the same
magnitude, the average rate of profit would then be 90/4 or 22½%.

Suppose, however, the total capitals are as follows: A = 200, B = 300, C =
1,000, D = 4,000. The profits produced would then respectively = 50, 120, 150,
and 400. This makes a profit of 720, and an average rate of profit of 13 1/11%
for 5,500, the sum of the four capitals.

The masses of the total value produced differ in accordance with the
magnitudes of the total capitals invested in A, B, C, D, respectively. The
formation of the average rate of profit is, therefore, not merely a matter of
obtaining the simple average of the different rates of profit in the various
spheres of production, but rather one of the relative weight which these
different rates of profit have in forming this average. This, however, depends
on the relative magnitude of the capital invested in each particular sphere, or
on the aliquot part which the capital invested in each particular sphere forms
in the aggregate social capital. There will naturally be a very great
difference, depending on whether a greater or smaller part of the total capital
produces a higher or lower rate of profit. And this, again, depends on how much
capital is invested in spheres, in which the variable capital is relatively
small or large compared to the total capital. It is just like the average
interest obtained by a usurer who lends various quantities of capital at
different interest rates; for instance, at 4, 5, 6, 7%, etc. The average rate
will depend entirely on how much of his capital he has loaned out at each of
the different rates of interest.

The general rate of profit is, therefore, determined by two factors:
1) The organic composition of the capitals in the different spheres of
production, and thus, the different rates of profit in the individual spheres.
2) The distribution of the total social capital in these different spheres, and
thus, the relative magnitude of the capital invested in each particular sphere
at the specific rate of profit prevailing in it; i. e., the relative share of
the total social capital absorbed by each individual sphere of production.

In Books I and II we dealt only with the value of commodities. On
the one hand, the cost-price has now been singled out as a part of
this value, and, on the other, the price of production of commodities
has been developed as its converted form.

Suppose the composition of the average social capital is 80c + 20v and the annual rate of
surplus-value, s', is 100%. In that case the average annual profit for a
capital of 100 = 20, and the general annual rate of profit = 20%. Whatever the
cost-price, k, of the commodities annually produced by a capital of 100, their
price of production would then be k + 20. In those spheres of production in
which the composition of capital would = (80 - x)c + (20
+ x)v, the actually produced surplus-value, or the annual
profit produced in that particular sphere, would be 20 + x, that is, greater
than 20, and the value of the produced commodities = k + 20 + x, that is,
greater than k + 20, or greater than their price of production. In those
spheres, in which the composition of the capital=(80 + x)c
+ (20 - x)v, the annually produced surplus-value,
or profit, would = 20 - x, or less than 20, and consequently the value of the
commodities k + 20 - x less than the price of production, which = k + 20. Aside
from possible differences in the periods of turnover, the price of production
of the commodities would then equal their value only in spheres, in which the
composition would happen to be 80c + 20v.

The specific development of the social productivity of labour in each
particular sphere of production varies in degree, higher or lower, depending on
how large a quantity of means of production are set in motion by a definite
quantity of labour, hence in a given working-day by a definite number of
labourers, and, consequently, on how small a quantity of labour is required for
a given quantity of means of production. Such capitals as contain a larger
percentage of constant and a smaller percentage of variable capital than the
average social capital are, therefore, called capitals of higher
composition, and, conversely, those capitals in which the constant is
relatively smaller, and the variable relatively greater than in the average
social capital, are called capitals of lower composition. Finally, we
call those capitals whose composition coincides with the average, capitals of
average composition. Should the average social capital be composed in per cent
of 80c + 20v, then a capital of
90c + 10v is higher, and a
capital of 70c + 30vlower
than the social average. Generally speaking, if the composition of the average
social capital=mc + nv, in which m and n are constant magnitudes and m + n =
100, the formula (m + x)c + (n - x)v represents the higher composition, and (m - x)c + (n + x)v the lower composition of an
individual capital or group of capitals. The way in which these capitals
perform their functions after establishment of an average rate of profit and
assuming one turnover per year, is shown in the following tabulation, in which
I represents the average composition with an average rate of profit of 20%.

I) 80v + 20v
+ 20s. Rate of profit = 20%.

Price of product = 120. Value = 120.

II) 90c + 10v + 10s. Rate of profit =
20%.

Price of product = 120. Value = 110.

III) 70c + 30v + 30s. Rate of profit =
20%.

Price of product = 120. Value = 130.

The value of the commodities produced by capital II would, therefore, be
smaller than their price of production, the price of production of the
commodities of III smaller than their value, and only in the case of capital I
in branches of production in which the composition happens to coincide with the
social average, would value and price of production be equal. In applying these
terms to any particular cases note must, however, be taken whether a deviation
of the ratio between c and v is simply due to a change in the value of the
elements of constant capital, rather than to a difference in the technical
composition.

The foregoing statements have at any rate modified the original assumption
concerning the determination of the cost-price of commodities. We had
originally assumed that the cost-price of a commodity equalled the value of the
commodities consumed in its production. But for the buyer the price of
production of a specific commodity is its cost-price, and may thus pass as
cost-price into the prices of other commodities. Since the price of production
may differ from the value of a commodity, it follows that the cost-price of a
commodity containing this price of production of another commodity may also
stand above or below that portion of its total value derived from the value of
the means of production consumed by it. It is necessary to remember this
modified significance of the cost-price, and to bear in mind that there is
always the possibility of an error if the cost-price of a commodity in any
particular sphere is identified with the value of the means of production
consumed by it. Our present analysis does not necessitate a closer examination
of this point. It remains true, nevertheless, that the cost-price of a
commodity is always smaller than its value. For no matter how much the
cost-price of a commodity may differ from the value of the means of production
consumed by it, this past mistake is immaterial to the capitalist. The
cost-price of a particular commodity is a definite condition which is given,
and independent of the production of our capitalist, while the result of his
production is a commodity containing surplus-value, therefore an excess of
value over and above its cost-price. For all other purposes, the statement that
the cost-price is smaller than the value of a commodity has now changed
practically into the statement that the cost-price is smaller than the price of
production. As concerns the total social capital, in which the price of
production is equal to the value, this statement is identical with the former,
namely that the cost-price is smaller than the value. And while it is modified
in the individual spheres of production, the fundamental fact always remains
that in the case of the total social capital the cost-price of the commodities
produced by it is smaller than their value, or, in the case of the total mass
of social commodities, smaller than their price of production, which is
identical with their value. The cost-price of a commodity refers only to the
quantity of paid labour contained in it, while its value refers to all the paid
and unpaid labour contained in it. The price of production refers to the sum of
the paid labour plus a certain quantity of unpaid labour determined for any
particular sphere of production by conditions over which it has no control.

The formula that the price of production of a commodity = k + p, i. e.,
equals its cost-price plus profit, is now more precisely defined with p = kp'
(p' being the general rate of profit). Hence the price of production = k + kp'.
If k = 300 and p' = 15%, then the price of production is k + kp' = 300 + 300 ×
15/100, or 345.

The price of production of the commodities in any particular sphere may
change in magnitude:

1) If the general rate of profit changes independently of this particular
sphere, while the value of the commodities remains the same (the same
quantities of congealed and living labour being consumed in their production as
before).

2) If there is a change of value, either in this particular sphere in
consequence of technical changes, or in consequence of a change in the value of
those commodities which form the elements of its constant capital, while the
general rate of profit remains unchanged.

3) Finally, if a combination of the two aforementioned circumstances takes
place.

In spite of the great changes occurring continually, as we shall see, in the
actual rates of profit within the individual spheres of production, any real
change in the general rate of profit, unless brought about by way of an
exception by extraordinary economic events, is the belated effect of a series
of fluctuations extending over very long periods, fluctuations which require
much time before consolidating and equalising one another to bring about a
change in the general rate of profit. In all shorter periods (quite aside from
fluctuations of market-prices), a change in the prices of production is,
therefore, always traceable prima facie to actual changes in the value
of commodities, i. e., to changes in the total amount of labour-time required
for their production. Mere changes in the money-expression of the same values
are, naturally, not at all considered here.

On the other hand, it is evident that from the point of view of the total
social capital the value of the commodities produced by it (or, expressed in
money, their price) = value of constant capital + value of variable capital +
surplus-value. Assuming the degree of labour exploitation to be constant, the
rate of profit cannot change so long as the mass of surplus-value remains the
same, unless there is a change in either the value of the constant capital, the
value of the variable capital, or the value of both, so that C changes, and
thereby s/C, which represents the general rate of profit. In each case,
therefore, a change in the general rate of profit implies a change in the value
of commodities which form the elements of the constant or variable capital, or
of both.

Or, the general rate of profit may change, while the value of the
commodities remains the same, when the degree of labour exploitation changes.

Or, if the degree of labour exploitation remains the same, the general rate
of profit may change through a change in the amount of labour employed relative
to the constant capital as a result of technical changes in the labour-process.
But such technical changes must always show themselves in, and be attended by,
a change in the value of the commodities, whose production would then require
more or less labour than before.

We saw in Part I that surplus-value and profit are identical from the
standpoint of their mass. But the rate of profit is from the very outset
distinct from the rate of surplus-value, which appears at first sight as merely
a different form of calculating. But at the same time this serves, also from
the outset, to obscure and mystify the actual origin of surplus-value, since
the rate of profit can rise or fall while the rate of surplus-value remains the
same, and vice versa, and since the capitalist is in practice solely interested
in the rate of profit. Yet there was difference of magnitude only between the
rate of surplus-value and the rate of profit and not between the surplus-value
itself and profit. Since in the rate of profit the surplus-value is calculated
in relation to the total capital and the latter is taken as its standard of
measurement, the surplus-value itself appears to originate from the total
capital, uniformly derived from all its parts, so that the organic difference
between constant and variable capital is obliterated in the conception of
profit. Disguised as profit, surplus-value actually denies its origin, loses
its character, and becomes unrecognisable. However, hitherto the distinction
between profit and surplus-value applied solely to a qualitative change, or
change of form, while there was no real difference of magnitude in this first
stage of the change between surplus-value and profit, but only between the rate
of profit and the rate of surplus-value.

But it is different, as soon as a general rate of profit, and thereby an
average profit corresponding to the magnitude of invested capital given in the
various spheres of production, have been established.

It is then only an accident if the surplus-value, and thus the profit,
actually produced in any particular sphere of production, coincides with the
profit contained in the selling price of a commodity. As a rule, surplus-value
and profit and not their rates alone, are then different magnitudes. At a given
degree of exploitation, the mass of surplus-value produced in a particular
sphere of production is then more important for the aggregate average profit of
social capital, and thus for the capitalist class in general, than for the
individual capitalist in any specific branch of production. It is of importance
to the latter only in so far as the quantity of surplus-value produced in his
branch helps to regulate the average profit. But this is a process which occurs
behind his back, one he does not see, nor understand, and which indeed does not
interest him. The actual difference of magnitude between profit and
surplus-value — not merely between the rate of profit and the rate of
surplus-value — in the various spheres of production now completely
conceals the true nature and origin of profit not only from the capitalist, who
has a special interest in deceiving himself on this score, but also from the
labourer. The transformation of values into prices of production serves to
obscure the basis for determining value itself. Finally, since the mere
transformation of surplus-value into profit distinguishes the portion of the
value of a commodity forming the profit from the portion forming its
cost-price, it is natural that the conception of value should elude the
capitalist at this juncture, for he does not see the total labour put into the
commodity, but only that portion of the total labour for which he has paid in
the shape of means of production, be they living or not, so that his profit
appears to him as something outside the immanent value of the commodity. Now
this idea is fully confirmed, fortified, and ossified in that, from the
standpoint of his particular sphere of production, the profit added to the
cost-price is not actually determined by the limits of the formation of value
within his own sphere, but through completely outside influences.

The fact that this intrinsic connection is here revealed for the first time;
that up to the present time political economy, as we shall see in the following
and in Book IV, either forcibly abstracted itself from the distinctions between
surplus-value and profit, and their rates, so it could retain value
determination as a basis, or else abandoned this value determination and with
it all vestiges of a scientific approach, in order to cling to the differences
that strike the eye in this phenomenon — this confusion of the theorists
best illustrates the utter incapacity of the practical capitalist, blinded by
competition as he is, and incapable of penetrating its phenomena, to recognise
the inner essence and inner structure of this process behind its outer
appearance.

In fact, all the laws evolved in Part I concerning the rise and fall of the
rate of profit have the following two-fold meaning:

1) On the one hand, they are the laws of the general rate of profit. In view
of the many different causes which make the rate of profit rise or fall one
would think, after everything that has been said and done, that the general
rate of profit must change every day. But a trend in one sphere of production
compensates for that in another, their effects cross and paralyse one another.
We shall later examine to which side these fluctuations ultimately gravitate.
But they are slow. The suddenness, multiplicity, and different duration of the
fluctuations in the individual spheres of production make them compensate for
one another in the order of their succession in time, a fall in prices
following a rise, and vice versa, so that they remain limited to local, i. e.,
individual, spheres. Finally, the various local fluctuations neutralise one
another. Within each individual sphere of production, there take place changes,
i. e., deviations from the general rate of profit, which counterbalance one
another in a definite time on the one hand, and thus have no influence upon the
general rate of profit, and which, on the other, do not react upon it, because
they are balanced by other simultaneous local fluctuations. Since the general
rate of profit is not only determined by the average rate of profit in each
sphere, but also by the distribution of the total social capital among the
different individual spheres, and since this distribution is continually
changing, it becomes another constant cause of change in the general rate of
profit. But it is a cause of change which mostly paralyses itself, owing to the
uninterrupted and many-sided nature of this movement.

2) Within each sphere, there is some room for play for a longer or shorter
space of time, in which the rate of profit of this sphere may fluctuate, before
this fluctuation consolidates sufficiently after rising or falling to gain time
for influencing the general rate of profit and therefore assuming more than
local importance. The laws of the rate of profit, as developed in Part I of
this book, likewise remain applicable within these limits of space and time.

The theoretical conception concerning the first transformation of
surplus-value into profit, that every part of a capital yields a uniform
profit, expresses a practical fact. Whatever the composition of an industrial
capital, whether it sets in motion one quarter of congealed labour and
three-quarters of living labour, or three-quarters of congealed labour and
one-quarter of living labour, whether in one case it absorbs three times as
much surplus-labour, or produces three times as much surplus-value than in
another — in either case it yields the same profit, given the same degree
of labour exploitation and leaving aside individual differences, which,
incidentally, disappear because we are dealing in both cases with the average
composition of the entire sphere of production. The individual capitalist (or
all the capitalists in each individual sphere of production), whose outlook is
limited, rightly believes that his profit is not derived solely from the labour
employed by him, or in his line of production. This is quite true, as far as
his average profit is concerned. To what extent this profit is due to the
aggregate exploitation of labour on the part of the total social capital, i.
e., by all his capitalist colleagues — this interrelation is a complete
mystery to the individual capitalist; all the more so, since no bourgeois
theorists, the political economists, have so far revealed it. A saving of
labour — not only labour necessary to produce a certain product, but also
the number of employed labourers — and the employment of more congealed
labour (constant capital), appear to be very sound operations from the economic
standpoint and do not seem to exert the least influence on the general rate of
profit and the average profit. How could living labour be the sole source of
profit, in view of the fact that a reduction in the quantity of labour required
for production appears not to exert any influence on profit? Moreover, it even
seems in certain circumstances to be the nearest source of an increase of
profits, at least for the individual capitalist.

If in any particular sphere of production there is a rise or fall of the
portion of the cost-price which represents the value of constant capital, this
portion comes from the circulation and, either enlarged or reduced, passes from
the very outset into the process of production of the commodity. If, on the
other hand, the same number of labourers produces more or less in the same
time, so that the quantity of labour required for the production of a definite
quantity of commodities varies while the number of labourers remains the same,
that portion of the cost-price which represents the value of the variable
capital may remain the same, i. e., contribute the same amount to the
cost-price of tho total product. But every one of the individual commodities
whose sum makes up the total product, shares in more or less labour (paid and
therefore also unpaid), and shares consequently in the greater or smaller
outlay for this labour, i. e., a 1arger or smaller portion of the wage. The
total wages paid by the capitalist remain the same, but wages differ if
calculated per piece of the commodity. Thus, there is a change in this portion
of the cost-price of the commodity. But no matter whether the cost-price of the
individual commodity (or, perhaps, the cost-price of the sum of commodities
produced by a capital of a given magnitude) rises or falls, be it due to such
changes in its own value, or in that of its elements, the average profit of,
e.g., 10% remains 10%. Still, 10% of an individual commodity may represent very
different amounts, depending on the change of magnitude caused in the
cost-price of the individual commodity by such changes of value as we have
assumed.

So far as the variable capital is concerned — and this is most
important, because it is the source of surplus-value, and because anything
which conceals its relation to the accumulation of wealth by the capitalist
serves to mystify the entire system — matters get cruder or appear to the
capitalist in the following light: A variable capital of £100 represents the
weekly wage of, say, 100 labourers. If these 100 labourers weekly produce 200
pieces of a commodity = 200C, in a given working-time, then 1C —
abstracted from that portion of its cost-price which is added by the constant
capital, costs £100/200 = 10 shillings, since £100 = 200C. Now suppose that a
change occurs in the productiveness of labour. Suppose it doubles, so that the
same number of labourers now produces twice 200C in the time which it
previously took to produce 200C. In that case (considering only that part of
the cost-price which consists of wages) 1C = £100/400 = 5 shillings, since now
£100 = 400C. Should the productiveness decrease one-half, the same labour would
produce only 200C/2 and since £100 = 200C/2, 1C = £200/2 = £1. The changes in
the labour-time required for the production of the commodities, and hence the
changes in their value, thus appear in regard to the cost-price, and hence to
the price of production, as a different distribution of the same wage for more
or fewer commodities, depending on the greater or smaller quantity of
commodities produced in the same working-time for the same wage. What the
capitalist, and consequently also the political economist, see is that the part
of the paid labour per piece of commodity changes with the productivity of
labour, and that the value of each piece also changes accordingly. What they do
not see is that the same applies to unpaid labour contained in very piece of
the commodity, and this is perceived so much less since the average profit
actually is only accidentally determined by the unpaid labour absorbed in the
sphere of the individual capitalist. It is only in such crude and meaningless
form that we can glimpse that the value of commodities is determined by the
labour contained in them.